City of Austin’s affordable housing initiative fizzles out

An Austin City Council affordable housing initiative fizzled out early June 19 as the Council voted to adopt a PUD ordnance supported by the developer lobby and opposed by city boards, city commissions and housing advocates. The ordnance will contribute little to solving Austin’s affordable housing crisis.

Ignoring the advice of the Austin Planning Commission and the Austin Community Development Commission, the City Council accommodated the wishes of the Real Estate Council of Austin, the lobby arm of Austin’s real estate investors and home builders, adopting definitions of “affordable” housing that define a two bedroom apartment renting for $1,459 per month as affordable. The City will provide developers with density and height bonuses worth up to many millions of dollars in exchange for making between five and ten percent of housing units in new developments meet this extremely liberal definition of affordability.

Austin is the most expensive city in Texas for housing. This high cost of housing seriously threatens the city’s much touted image of a diverse and easy going place to live, driving lower income and working class folks to the suburbs and exurban areas, while in turn compounding transportation, environmental and urban sprawl problems.

How to best address these issues drives Austin’s political life and the agenda at City Hall. In light of this obsession, how did the City Council manage to blow the city’s major affordable housing initiative?

The story is complex, so let’s take it one step at a time.

Step 1: Overview of the Austin PUD ordnance

The Austin City Council’s affordable housing initiative ultimately took form in a Planned Unit Development (PUD) ordnance passed June 18.

Let’s begin by watching the City’s Neighborhood Planning and Zoning Department’s Jerry Rusthoven explain the PUD ordnance. This video of his presentation prior to the City Council vote on the ordnance lasts about 10 minutes and is vital background to understanding the ordnance. [If, after watching the video, the complexity of the PUD ordnance does not frustrate you then you should check in with the City of Austin Personel Office as you are qualified for employment with our City which revels in creating arcanely complex governmental regulations 🙂 ].

Step 2: The background

A little history is in order. In 2005 state representative Todd Baxter filed, and the Texas Legislature ultimately passed, a bill prohibiting Texas cities from enacting inclusionary zoning.

Inclusionary zoning is a tool used in many places to ensure that new development is economically integrated and produces affordable housing. Inclusionary zoning generally requires that developers either provide some small portion of housing units in new developments at an affordable cost or pay into a fund to finance others to produce affordable housing. (For a more detailed description of inclusionary zoning see Dr. Elizabeth Muller’s paper on inclusionary zoning that I posted on this blog on June 10).

The principal supporter of Rep. Baxter’s bill to outlaw inclusionary zoning in Texas was the Austin Association of Home Builders. Ultimately, the Legislature passed the Baxter bill making Texas one of only two states in the nation to outlaw inclusionary zoning.

Step 3: A narrow legal interpretation

Shortly after the passage of the inclusionary zoning ban high end home construction and downtown condo development rapidly accelerated in Austin. The few neighborhoods with significant amounts of affordable housing began rapidly gentrifying, leading to increasing concern over the city’s diminishing affordable housing inventories.

The amount of new affordable housing needed in Austin far dwarfs the $55 million affordable housing bond issue passed by Austin voters. Constrained by the Baxter bill’s outlawing of the best tool for increasing affordable housing, advocates urged the City Council to consider using real estate development incentives such as density and height bonuses, beyond those allowed under existing city zoning standards, as an incentive to get developers to voluntarily build some affordable housing in the host of new developments being planned in Austin.

But the Austin City Attorney’s office warned the City Council that this type of negotiated agreement could be illegal under state law that prohibits “contract zoning”. The solution proposed was an amendment to the City’s zoning ordnance that would explicitly allow greater heights and densities in new developments that promised to produce specific numbers of affordable housing units — the PUD ordnance.

Density and height incentives have their downsides from the perspective of the quality of life in the city and neighborhood affordability and need to be used carefully. For example, existing housing and neighborhoods are impacted in terms of quality of life and tax assessments by increased densities. So the trade off between development concessions and the affordable housing they would generate through the PUD ordnance need to be carefully balanced.

Sensing an opportunity to make more money from their developments, the industry lobby readily agreed to negotiate the terms of a new PUD ordnance to grant them voluntary affordable housing incentives.

Step 4: A strange way to negotiate

The City Council set out on a ten month process of talking to the city’s real estate developer lobby, affordable housing advocates and others about crafting the specifics of the new PUD ordnance.

The Council adopted a flawed negotiating posture. Instead of starting with the City’s affordable housing goals and negotiating from there, the Council simply asked the real estate lobby what the real estate developers would be willing to do.

In a city where politics have long been dominated by development interests I suppose this was to be expected and the results predictable. But the overwhelming public pressure to deal with the housing affordability crisis, coupled with the rhetoric coming from the Council members led many of us to expect that for once they would be more aggressive with the industry. But, as the months of negotiations dragged on without any movement on the amount of affordable housing offered by the industry and with no pressure from the Council, it became clear that things had not changed in Austin.

Step 5: The positions

The investor/developer lobby position is easily understood. They want increased densities and greater building heights in exchange for providing as little affordable housing as possible in order to maximize their profits.

Affordable housing advocates have two complex goals. First, they want to get as much affordable housing from this, the only non-tax housing production tool available in the wake of the Baxter Bill. Second, advocates want the housing to be affordable to those who need the housing.

In Austin there is no argument among experts that “affordable” means housing affordable to families earning 60% and below of median family income — $42,660 a year for a family of four. A family at this income level can afford a rent of no more than $935 per month.

On the other hand, there are an abundance of rental units affordable to families earning 80 percent of the median, $56,900 yearly income for a family of four, renting for no more than $1,459 per month. There is no reason to subsidize the production of additional rental units at this rent level.

In fact, advocates point out that the most pressing need is for housing affordable to families earning 30 percent or less of the median income ($21,350 for a family of four). These lowest income families require rents that are clearly below the levels that a developer can afford to produce without additional subsidy. But advocates say that the $55 million Austin housing bond fund can be used to provide financial enhancements to developers to create this type of housing. But this is really only economically practical if the City can get the developers to produce a basic affordable housing unit at the level of affordability halfway between a market based rental unit (affordable at 80 percent of median) and a low-income rental unit (affordable at 30% of median). Otherwise the amount of bond funds required to be added to drive down rents to the level affordable at 30 percent of median income is too large. Thus, creating a rental housing unit affordable at 60 percent of median income is their goal through the density and height incentives offered to developers.

The advocates presented the Council development proformas and other studies demonstrating that with the density and/or height bonuses developers are offered through the PUD ordnance, developers could easily afford to provide ten percent of their housing units at a rent affordable at 60 percent of median income.

This negotiating process is not one of those situations where the City Council should set back, adopt a neutral stance and arbitrate between two competing sets of interests. The interests of the housing advocates are the interests of the city as a whole. The City has just passed a $55 million housing bond to pay to produce affordable housing. Yet these bonds will not come close to what is needed. If the City Council fails to get the best deal from the developers then the pressure is on to fund more affordable housing using city general tax revenues.

Step 6: The deal

The ordnance the City Council adopted was so weighted in the developers favor that City boards and commissions raised objections.

[This is where things get really complicated].

Within the “Urban Roadway Boundary”, defined as roughly Highway 183 on the north and east, Ben White Blvd on the south and MO-PAC on the west, the developers offered, and the Council accepted a deal to make ten percent of the rental units available at rents affordable to families earning 80 percent of median income and five percent of new owner occupied housing affordable to families earning 80 percent of median. This “affordable” rent level translates to $1,439 per month. This is not exactly what most lower-income Austin families would think of when they imagine affordable rent.

Why the Council decided to require ten percent rental units be affordable but only five percent of owner occupied housing was not explained.

In areas outside of the “Urban Roadway Boundary” (more out lying areas of town), the affordability ratios would require ten percent of rental housing to be affordable at 60 percent of median income and five percent of owner housing to be affordable at 80 percent of median income. I hasten to point out that these rental affordability provisions are an accomplishment of significance. The owner occupied affordability provisions of only five percent, as opposed to the ten percent recommended by the Planning and Community Development Commissions, is disappointing however.

Making things more complicated is a caveat applying to development in low income neighborhoods. If the City’s housing department advises the City Council that an area around a proposed PUD has rents that are lower than the proposed “affordable” rents provided in the PUD, the Council may insist upon rents in this PUD being affordable at levels lower than 80 percent of median income.

This provision is especially troubling given Austin’s existing hyper levels of racial and economic segregation. Through this ordnance the City has made it a public policy to continue to concentrate lower cost housing in areas of the city that already have lower cost housing. This policy can and probably will be challenged as violating the City’s duty under federal statutes to “affirmatively further fair housing”.

Step 7: Reaction

The City’s commission overseeing housing objected to this deal. My colleague Karen Paup, who serves on the Community Development Commission, explained the commission’s position to the City Council shortly before the vote on the PUD ordnance.

The City Planning Commission also advised the City Council that this was a bad deal for the City and urged the Council to insist on more affordability. Specifically, they asked the City Council to require that developers make ten percent of the owner occupied units (instead of five percent) affordable at 80 percent of median income and ten percent of rental units affordable at rents to families earning 60 percent of the area median income within the Urban Roadway Boundary. This was the same recommendation made by the Community Development Commission.

Step 8: Giving the developers everything they asked for

Public policy negotiations are usually a process of compromise. But the City of Austin’s affordable housing initiative turned out to be not a negotiation on public policy by an acquiescence to the position of the real estate development industry.

After hearing the recommendations from the City’s own boards and commissions against granting the developers height and density bonus in exchange for the shallow and sometimes meaningless affordable housing concessions the developers offered, the City Council voted unanimously to adopt an ordnance based on the developer position. There was no public discussion of increasing affordability requirements.

Those concerned about affordable housing in Austin are left frustrated that ten months of negotiations have produced so little. Even more frustrating is the extent to which the real estate lobby has managed to gain valuable concessions for so little. Having gone to the Texas Legislature to pass a bill to tie the City’s hands in regard to inclusionary zoning, the industry convinced the Council to hand the industry major development concessions in exchange for little public value.

You have to give the lobby credit for delivering for their clients.

With passage of this ordnance, the City Council has given away the only major tool the City has to produce affordable housing, other than a major new tax expenditure. The public has received next to nothing in return.